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Woolies amasses $850m land bank as it rolls out Masters stores

WOOLWORTHS is sitting on a land bank worth nearly $850 million as it rolls out its national hardware chain, Masters. It has also created a New Zealand subsidiary for its new home improvement business to allow a possible overseas expansion.

Documents obtained by BusinessDay also show the 15 Masters stores operating in 2011-12 pulled in sales of just over $160 million, or $11 million per store, as Woolworths and its US joint-venture partner Lowe's launched a marketing and advertising blitz to tempt customers away from industry leader Bunnings and smaller suburban hardware players.

Masters recorded a pre-interest and tax loss of $96.66 million in its second year, financial records show, in line with guidance from Woolworths chief executive Grant O'Brien of a loss of about $100 million at this point in its growth phase.

The partners have ramped up their investment activity and land acquisitions to win a slice of Australia's $40 billion hardware sector and hit their stated target of 150 Masters sites by 2016-17.

In July, Woolworths and Lowe's backed Masters in a deal to borrow $150 million in fresh working capital. It marked the first time the Masters partnership had taken on significant debt to roll out its home improvement store network. The joint venture had zero borrowings in 2012 and debt of only $362,000 in 2011.

The loan will be used to purchase and develop land for new stores.


The documents reveal that Hydrox Holdings, the Masters holding company owned two-thirds by Woolworths and a third by Lowe's, was sitting on a land and property bank valued at more than $840 million at the end of June 2012. This is almost double the $430 million in land and property the joint venture had in its books in June 2011.

Woolworths' huge appetite for property has seen it scoop up land around capital cities over the past 24 months, with its arch-rival Bunnings also on the hunt for prime sites.

Since June 30 Woolworths has opened another seven Masters stores to take the total to 22 stores and is opening a new Masters every 2½ weeks.

Not to be outdone, Bunnings will spend $1.5 billion building up to 78 new stores over the next three years to defend its dominant position.

Hydrox's full-year accounts report that it had revenue of $664.3 million in 2010-11, a period when no Masters stores were opened, with all of the revenue coming from its Danks operations. Revenue in 2011-12 jumped to $828.311 million, with 15 Masters stores up and running. It is believed much of the $160 million in new sales came from the new Masters network. However, some of these may have been open for only a few weeks or months during the 2012 financial year.

Woolworths and Masters have said the average site should pull in $25 million to $30 million a year in sales, and the business should break even in year three or four. The documents also reveal that Hydrox was sitting on net assets of $1.665 billion in 2012, up from $1.182 billion in 2011, and cash of $76 million.

Its staff numbers have risen to 4821 employees from 1219 at the end of 2010-11.

Still in its start-up phase, the Masters joint venture made a full-year net loss of $62.157 million for 2012, up from the loss of $7.821 million in financial 2011.